Capozzi Adler PC has found another $1 billion 401(k) plan with “astronomical” fees in which “high recordkeeping fees” and underperforming target-date funds left participant accounts “languishing” in the plan.
The target this time is Marmon Holdings, Inc., a Berkshire Hathaway company, which comprises 11 groups and more than 100 autonomous businesses with total annual revenue of $10 billion. The plan in question has about 14,000 participants at the end of 2020, and approximately $1.1 billion in assets.
The proposed class action, filed in the U.S. District Court for the Northern District of Illinois (Lard v. Marmon Holdings, Inc., N.D. Ill., No. 1:22-cv-04332, complaint 8/16/22), with the participant-plaintiffs represented by the law firm of Capozzi Adler PC relies on many of the same arguments—and the identical language utilized in a number of the growing number of ERISA excessive fee suits the firm has filed.
Languishing in the Plan?
Here they note that plaintiff, Jennifer R. Lard “… was subject to the excessive RKA costs alleged below. Plaintiff Lard suffered injury to her Plan account by overpaying for her share of RKA costs,” specifically by investing in the Target Retirement 2040 Fund…,” and further “…from the underperformance and excessive expense of this fund.” The suit goes on to claim that she “suffered injury to her Plan account by having to pay for her share of consulting fees to maintain any of the lower performing or expensive funds in the Plan whether specifically identified herein or not”….funds that, according to the suit, “were maintained and monitored with the assistance of Mercer Consulting who received at least $186,535 during 2020, the cost of which was borne by each participant in the Plan. Further, the suit claims that she suffered injury via the diminution of her balance due to those “high recordkeeping and underperforming funds which were left languishing in the Plan whether they are specifically identified herein or not.”
Identical claims were presented on behalf of plaintiffs John J. Juergens (who also invested in the Target Retirement 2040 fund), Gerald L. Robinson (who invested in the Target Retirement 2020 Fund), Scott W. Anderson (who invested in the Target Retirement 2050 Fund), Thomas A. Pitera (who also invested in the Target Retirement 2050 Fund), Sharon Bradley-Smith (who invested in—well, she apparently split her investment in the Target Retirement 2020 through 2060 Funds), and Toranz J. Plummer (who invested in the Target Retirement 2060 Fund).
As in other suits where the plaintiffs were represented by Capozzi Adler, this one takes the time to point out that, “like other companies that sponsor a 401(k) plan for their employees, Marmon enjoys both direct and indirect benefits by providing matching contributions to the Plan’s participants,” both in terms of tax deductions, the role such programs play in helping attract and retain workers, and “given the size of the Plan, Marmon likely enjoyed a significant tax and cost savings from offering a match.”
The plaintiffs here also claim to have drawn “reasonable inferences regarding Defendants’ decision-making processes based upon the numerous factors set forth below.”
‘Astronomical’ Fees
Here again (as it has in numerous other, similar suits[i]), the plaintiffs described the recordkeeping fees as “astronomical,” and according to the suit ranged from $137.79/participant to $66.90/participant between 2016 and 2020. The suit then listed several allegedly comparable plans (at least based on assets, and in some cases participants), that paid recordkeeping fees ranging from $23/participant to $36/participant, leading them to conclude that “the Plan, with over 10,000 participants and over $895 million dollars in assets in 2018, should have been able to negotiate recordkeeping costs ranging from $23 to the low $30 range from the beginning of the Class Period to the present. Anything above that would be an outlier especially later in the Class Period when RKA costs per participant should have been at the cheapest.”
At this point the plaintiffs state as fact that a request for proposal (RFP) “should happen at least every three to five years as a matter of course, and more frequently if the plans experience an increase in recordkeeping costs or fee benchmarking reveals the recordkeeper’s compensation to exceed levels found in other, similar plans—citing cases where similar claims were made, as well as the NEPC 2020 Defined Contribution Progress Report. They also turn again to the 22nd Edition of the 401(k) Averages study, which they claim states that, “without factoring in amounts of revenue sharing, as is done here, the 401(k) Averages study found that the average plan with over 2,000 participants and 200 million in assets, paid no more than $13 per participant.” They then conclude that “the fact that the Plan has stayed with the same primary recordkeeper, namely Mass Mutual throughout the Class Period and paid the relatively same amount in recordkeeping fees from 2016 to the present, there is little to suggest that Defendants conducted a RFP at reasonable intervals—or certainly at any time prior to 2016 through the present—to determine whether the Plan could obtain better recordkeeping and administrative fee pricing from other service providers given that the market for recordkeeping is highly competitive, with many vendors equally capable of providing a high-level service.”
TDF Troubles
At that point the plaintiffs turn to their concerns with the target-date fund suite in the plan, noting that “the Defendants decided to create their own suite of target date funds, a practice which is baffling giving the number of excellent target date suites available on the market.” And so, as “the performance of the instant funds created by the Defendants severely lagged in performance as compared to readily available target date suites,” they state that “…it was clear breach of fiduciary duty to have created these poorly performing target date funds instead of choosing from the many better performing target date suites with expected stability for each expected retirement date.”
They go on to note that “it’s a clear the Plan should not have selected funds that had been created days earlier which lacked any performance history,” and as the current target date suite had an inception date of Aug. 7, 2017—the same date the funds became available in the Plan, “this is further evidence that the current target date lineup was created by the Plan.” However, the suit also states that “prior to August 7th of 2017, the Plan had a similar set of target date funds which were created by the Plan. It’s expected that these funds would similarly have had serious performance issues as compared to readily available target date suites as compared to the Plan’s target date suite”—and then the suit presents a table with ostensibly comparable target-date fund alternatives.
“Clearly, the fact that Marmon decided to create its own funds for the Plan was an error which cost the Plan millions in lost savings. Had the Defendants been acting in the sole interests of Plan participants throughout the Class Period, as required by ERISA, alternate better performing funds would have been selected and utilized as early as the start of the Class Period rather than allowing the Plan [to] languish under the burden of the funds created by Marmon, its advisors and/or affiliates.”
These level claims have been found insufficient to make a “plausible” case to proceed to discovery/trialin other cases. Will this court be persuaded this time?
NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.
[i] The Capozzi Adler firm has previously affixed the “astronomical” label to 401(k) fees—having previously done so in suits involving the $930 million Olin Corporation Contributing Employee Ownership Plan, $1.5 billion Baptist Health South Florida, Inc. 403(b) Employee Retirement Plan, the $1.2 billion 401(k) plan of the American Red Cross, the $700 million Pharmaceutical Product Development, LLC Retirement Savings Plan, the $2 billion plan of Cerner Corp, the $6 billion 401(k) plan of KPMG, and the Nokia Savings/401(k) Plan.
